At the time of writing, I have been back at work following the Christmas/New Year break for two whole days.
For me at least, it seems more challenging each year to pick up the rhythm and get back into the flow for another new year. But that’s life!
So, what will 2023 hold for us and our financial plans?
Here are a few thoughts…
I was recently asked if I expected to see an increase in superannuation contribution limits and the transfer balance cap threshold in 2023.
Changes to thresholds normally occurs from 1 July, when they are to be made.
The current concessional contribution cap of $27,500 has been in place since 1 July 2021. It increases in $2,500 increments in line with movements in Average Weekly Ordinary Time Earnings. Therefore, it is usual that several years will pass between increases.
With Australian wages growth having been suppressed over recent years, I am not expecting to see an increase in the concessional contribution cap this coming July.
As far as the non-concessional contribution cap is concerned, it is simply a multiple (4 times) of the concessional contribution cap. When the concessional contribution cap is increased to $30,000, the non-concessional contribution cap will increase to $120,000.
Another important cap applying to superannuation is the general transfer balance cap. This is the maximum amount a person may transfer to the retirement phase of superannuation when first commencing to draw a pension or income stream. The general transfer balance cap also impacts other superannuation strategies including the ability to make non-concessional contributions.
The cap is currently $1.7m and is indexed in line with movements in the Consumer Price Index, in increments of $100,000.
Given the inflationary pressure Australia has been experiencing, we expect the general transfer balance cap to increase to $1.8m (if not to $1.9m!) from 1 July 2023.
There are no planned changes to personal income tax rates for the coming year.
However, significant changes in personal income tax rates, particularly for middle and high income earners are due to take effect from 1 July 2024.
These changes have already been passed into law.
Government income support benefits including the age pension, disability support pension, and JobSeeker payments are reviewed throughout the year.
Generally, the rates of payment are indexed each March and September and the upper cut-off limits for the assets and income tests are also adjusted in March and September. The lower asset and income thresholds used to determine eligibility for the maximum rate of pension are reviewed in July each year.
In December 2022 legislation was passed that will allow age pensioners to earn an extra $4,000 from employment in the 2023 calendar year without it affecting pension. This is a temporary increase and will only apply until 31 December 2023. For information on the “Work Bonus”, see our article published 24 November 2022 – What is…the work bonus?
Deeming rates, the notional interest rate used to determine income on a range of financial investments for income test purposes, have been frozen until 30 June 2024. Even though interest rates have generally been increasing, there will be no changes to the deeming rates in 2023.
Commonwealth Seniors Health Card
This card is available to many older Australians who have reached age pension age, but don’t qualify for an age pension due to their assets or income. The card provides several valuable concessions, particularly for pharmaceutical items.
Eligibility is based on an income test. The income thresholds were increased significantly from 4 November 2022 and are indexed each September, based on movements in the Consumer Price Index.
2023 will continue to be influenced by the domestic and international economic environment including inflation, interest rates, housing prices, worker shortages, economic growth, the possibility of recessions throughout the world, and geo-political factors including a potential thawing of Australia’s relationship with China, and the ongoing threat of disruption due to the war in Eastern Europe.
The next likely indicator for Australia’s future will be the Federal Budget, that will be delivered in May 2023.
Let’s see what the year brings.
Retire By Design are Financial Advisers based on the Northern Beaches of Sydney that specialises in quality straightforward Retirement Planning advice